Ahead of the Curve

The lending environment is undergoing a worrying change. Funds that European direct lenders have raised but not yet deployed are at an all-time high and banks in most Western-European jurisdictions have renewed lending following years of reticence after the global financial crisis, leading to increased competition amongst lenders in the small and medium enterprise (SME) market.

Pension funds welcome 'momentous' Paris climate agreement

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Pension funds have hailed the Paris climate change agreement as a “momentous achievement” but cautioned that its success hinges on the commitment of individual countries.

Investors said the agreement, reached after two weeks of intensive negotiations as part of the UN Climate Change Conference, showed “great potential” and would accelerate the global transition away from fossil fuels to a low-carbon economy.

Peter Damgaard Jensen, chief executive at Denmark’s PKA, welcomed the “historic milestone”, which saw the nearly 200 participating companies endorse a final text aiming to keep global warming at or below 1.5°C of the pre-industrial average, a more ambitious target than the 2°C initially expected.

The chief executive of the Institutional Investors Group on Climate Change (IIGCC), Stephanie Pfeifer, added that the agreement was an unequivocal signal to investors that an escalation of financing for low-carbon infrastructure was needed to deliver the targeted reduction in carbon emissions.

IIGCC chairman Donald MacDonald added that the text was a “momentous achievement”, singling out the lower temperature goal for praise.

MacDonald, also trustee director at the BT Pension Scheme, said climate-risk appraisal would move from “the margins to the mainstream” and predicted a “swift” change as pension funds recognised their fiduciary duty to tackle climate change.

The agreement, which endorsed the use of carbon pricing as a means of cutting emissions, showed that the world had a “shared vision”, according to Philippe Desfossés, chief executive at ERAFP, the supplementary pension scheme for French civil servants.

“Investors will encourage every country keen to build a sustainable economy to develop a long-term, low-emissions development strategy,” Desfossés said, noting the future importance of carbon pricing.

Jeanett Bergan, head of responsible investment at Norwegian pension provider KLP, agreed that the text showed “great potential” but warned there were still still risks.

“It all depends on how each and every government is implementing the ambitions,” she told IPE.

She cited KLP and other asset owners’ shift away from coal-intensive industries as one step to be taken to align portfolios with a 2°C or lower target.

But she also pointed out the recent RE100 initiative by ShareAction, which aims to get companies to commit to 100% renewable energy use, as a way of getting them to do their part.

Bergan added: “All of that will, together, be part of the important drivers for the solution.”

Damgaard Jensen agreed, noting that PKA had long called for “clear and secure” political guidelines to make climate-friendly investments possible – a goal seemingly achieved during the Paris negotiations.

“But it’s important politicians, companies and investors take concrete measurements to actively make the agreement a reality,” he said.